Will you give commercial tenants a rent holiday?

Discussion in 'Commercial Property' started by danvestor, 20th Mar, 2020.

Join Australia's most dynamic and respected property investment community
  1. danvestor

    danvestor Well-Known Member

    Joined:
    31st Aug, 2019
    Posts:
    52
    Location:
    newcastle
    Quick question for the minds on here that own commercial property, particularly with hospitality, tourism etc tenants.

    Will you wait and see whether the bank will give you a mortgage holiday first?
     
  2. Handyandy

    Handyandy Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    335
    Location:
    Sutherland
    I don't need a mortgage holiday as we owe very little. Even if you received a mortgage holiday it would only be a deferment.

    I would consider deferring or reducing rent but only in line with what I asses the tenant could subsequently catch up on.
     
    Player and Beano like this.
  3. Beano

    Beano Well-Known Member

    Joined:
    7th Apr, 2016
    Posts:
    2,019
    Location:
    Brisbane
    If the tenant comes to us it may be an opportunity to amend the lease to obtain better terms.
    I assume the hotel (as an example) would show us the occupancy rate.
    The other senario we need to look at is whether it is better to have a default and re-sell the hotel to a better operator.
    The next operator will have substantially less debt so will be more profitable.
    Cross that bridge when it happens!
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    24,854
    Location:
    Australia wide
    I had a client drop the rent of a commercial property by 25%, just because the tenant asked - I said he was crazy.
     
  5. danvestor

    danvestor Well-Known Member

    Joined:
    31st Aug, 2019
    Posts:
    52
    Location:
    newcastle
    Interesting. I'm talking about straight up forgiving the rent for a period of 3 months or so.

    It's not really a hypothetical, Feds and states are looking into it now. Personally our Cafe business has dropped 90% in a week and we'll be closed as of Monday as all our surrounding businesses are shut or working from home.

    It will be a real thing if you are a landlord of a Hospitality or Tourism tenant, or any of the flow on businesses.
     
  6. Beano

    Beano Well-Known Member

    Joined:
    7th Apr, 2016
    Posts:
    2,019
    Location:
    Brisbane
    Terry in my younger days each Tenant's rental was vital to paying the mortgage.
    We could never take a risk of losing a tenant ... luckily those days are gone (will I hope so :-( or else I am in trouble )
     
    Terry_w likes this.
  7. Ace in the Hole

    Ace in the Hole Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,539
    Location:
    Sydney
    Our most significant commercial property has a tenant who sells gym equipment.
    Sales have increased 5x almost overnight.
    The other is a medical center, which I don’t believe would be struggling either.
    Definitely no rental easing for either, but I do feel for the other industries more prone to risk in times like this.
     
    mrdobalina and Gockie like this.
  8. danvestor

    danvestor Well-Known Member

    Joined:
    31st Aug, 2019
    Posts:
    52
    Location:
    newcastle
    Completely fair enough, and it wouldn't be right for either of those tenants to take advantage of the situation to gain at your loss. More specifically talking Hospo and Tourism tenants.
     
  9. Omnidragon

    Omnidragon Well-Known Member

    Joined:
    17th Oct, 2015
    Posts:
    1,114
    Location:
    Victoria
    I've given 3 different tenants half rent for 2 months. All my guys are in the CBD - imagine the hit with offices shut and tourists banned.

    Separately, I had to cut rent by 15% in a HK place.

    Our landlord (we are also tenants in other premises) has suggested rent is reduced to 15% of our revenue.
     
  10. danvestor

    danvestor Well-Known Member

    Joined:
    31st Aug, 2019
    Posts:
    52
    Location:
    newcastle
    Yeah I don't need to imagine!

    We are down 90% revenue from Monday to today, and we expect it to fall further. It's already costing us hundreds in wages a day to keep the staff on. We are trying a last ditch marketing attempt at local apartments and then will have to close M-F and maybe completely.

    Edit: We also have a co-tenant above us who sub leases a small space from us, in the tourism industry. They have given $2 million in refunds in 2 days and have 0 income coming in, with staff still on the books, so are in the same boat as us.
     
  11. Beano

    Beano Well-Known Member

    Joined:
    7th Apr, 2016
    Posts:
    2,019
    Location:
    Brisbane
    Fifteen percent decrease sounds good to me .
    I have been vacant in HK for three month now :-(
    But the three month HK term deposits are at the highest I seen for many ,many years of 1.69%
     
    Last edited: 20th Mar, 2020
  12. Omnidragon

    Omnidragon Well-Known Member

    Joined:
    17th Oct, 2015
    Posts:
    1,114
    Location:
    Victoria
    Ye was an industrial flat. I still have an empty resi flat... I don't even bother to get agent in because who knows who has virus

    I just had a friend rent Belcher for $34k. 2 months ago was $37k/month
     
  13. Omnidragon

    Omnidragon Well-Known Member

    Joined:
    17th Oct, 2015
    Posts:
    1,114
    Location:
    Victoria
    Yea that's unfortunate to hear. I am fortunate because my tenants have a lease and a bond. My landlord is less fortunate as one of our major sites is just off a lease.
     
  14. hobo

    hobo Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    664
    Location:
    FNQ
    We’re giving our tenants some relief but still working out exactly what that will look like ie percentage discount / period etc.
     
  15. spludgey

    spludgey Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,904
    Location:
    Sydney
    You realise that any form of relief you voluntarily give now might be around for years, right?

    I will only give any rental relief if I can see serious hardship in tenants, given that I will end up in hardship if I was to give it to everyone straight away.

    Plus why am I expected to have reserves that last me longer than my tenants?
     
    HUGH72 and wylie like this.
  16. FireDragon

    FireDragon Well-Known Member

    Joined:
    31st Jul, 2015
    Posts:
    231
    Location:
    Australia
    Two shops in Australia. The big one is rented to a medical imaging company so no rent reduction. The small one (the size is about 1/5 of the big one) is vacant since last year as I am adding a substation next to it. I hoped to rent it out quickly but now don't think I can rent it out in the near future...

    Three shops in Hong Kong and they all requested about 30% rent reduction.
     
  17. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    16,579
    Location:
    Sydney or NSW or Australia
    I had discussions in-house last week about the issues and possible actions.

    This will be on a case by case basis, tenants are wholesalers, involved in food or construction industries.

    The foodies are booming due to current market demand issues however some of their businesses are suppliers to restaurants and also being importers will feel the effect of the falling AUD.
     
  18. hobo

    hobo Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    664
    Location:
    FNQ
    Why would the relief last for years??

    I’m talking about a, say, 25% discount for 3 or 6 months, then it reverts to normal rent levels.
     
  19. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    16,579
    Location:
    Sydney or NSW or Australia
    New leases struck at lower rates will last until pressures on accommodation build causing rents to rise.
     
    spludgey likes this.
  20. hobo

    hobo Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    664
    Location:
    FNQ
    This isn’t a new lease though?